But the $4.4 billion Parnassus Endeavor Fund
PARWX, -1.57%
isn’t limited to any one sector and has put up excellent numbers. At the end of the May, it had 34% of its money in tech — and 33% in health care, according to Morningstar. Its five-year average performance ranks among the best of the large-cap growth funds tracked by Morningstar.

Here are performance data through July 3:

Total return - 1 year

Average return - 3 years

Average return - 5 years

Average return - 10 years

Parnassus Endeavor Fund - Investor Shares

31.7%

13.8%

19.0%

12.5%

S&P 500

17.9%

9.2%

14.5%

7.1%

Morningstar Large Growth category

19.3%

8.2%

13.6%

7.3%

Source: Morningstar

The Parnassus Endeavor Fund typically holds about 30 large-cap stocks, and it’s no surprise that Jerome Dodson, the fund’s manager, selects companies that have “wide moats or strong competitive advantages that protect market share and profitability,” along with quality management teams.

But he also ties his focus on ESG — environment, social and governance factors — to his success in identifying management teams that get the most productivity out of their employees, while limiting reputation and legal risk.

Treating employees well, with profit-sharing programs, for example, can increase productivity while lowering turnover, which “drops to the bottom line,” he told MarketWatch in a June 30 interview. He used Parnassus Investments of San Francisco, which he founded in 1984, as an example. The company has $25 billion in assets under management with only 47 employees.

“If you treat your employees well, you don’t have high turnover. It is part of the common sense you need” to run a company well, he said.

Getting back to the fund’s investment selection, Dodson said that if companies “score well on ESG qualities, we think they will be more innovative and better at running a business.”

Parnassus Investments

Jerome Dodson, CEO of Parnassus Investments.

Looking back, painfully

When asked about stock picks he regrets, Dodson named two. One is International Business Machines Inc.
IBM, -1.26%
which he purchased nearly four years ago at $160 a share. The stock closed at $155.58 Monday. “Over three years you have to make money. I thought they would have been more innovative,” he said.

Dodson said IBM, which remains one of the fund’s largest holdings, underscores how difficult it can be to analyze a company from the outside. “I just know by the numbers I will make some misses. As long as the misses are relatively few and far between, we should be in good shape,” he said.

Dodson called Intel Corp.
INTC, -1.79%
a “great company,” but it has been another loser for the fund. He purchased the stock in 2015 at $33.80. It closed at $33.46 Monday. That’s not much of a loss, but it has been a drag on the portfolio. Intel “missed out” on certain technology trends, including smartphones, he said, but he still had hope for the stock.

Looking ahead

Dodson said that with the technology sector doing so well (the S&P 500 information technology sector has returned 33% over the past 12 months), “the next move may be down.” The IT sector trades for 16.8 times consensus 2018 earnings estimates, according to FactSet.

He said he has “in general been moving away from technology.”

“On the other hand, if you take health care, which has been very low, it is at bargain levels,” he said. The health-care sector has returned 12% over the past 12 months, and trades for 15.8 times consensus 2018 earnings estimates.

Asked to name his favorite health-care stock, Dodson called Gilead Sciences Inc.
GILD, -1.38%
“a good one” that has “traded much higher.” The stock’s price is down 39% over the past two years. Gilead’s revenue increased 127% in 2014 on the strength of its Harvoni hepatitis C medication. Sales increased another 31% in 2015, but were down 7% in 2016. Demand declined as fewer patients needed the treatment, and prices have been reduced.

But Gilead has a history of acquiring promising drugs under development from other companies as well developing its own medications. Dodson believes that with “all that cash and experience, they will come up with a very important drug.”

Meanwhile, with the stock “at or near bottom,” he is buying more shares. It was by far the largest holding of the Parnassus Endeavor Fund as of May 31:

Dodson also mentioned Micron Technology Inc.
MU, -3.49%
which helped the fund’s performance record quite a bit and accounted for 5% of the fund on May 31. Despite the dramatic increase in the share price over the past year, he isn’t quite ready to sell.

“We think there is a bit more growth there, but it will eventually run its course,” he said.

Micron’s memory chips “are almost a commodity,” so investors must “to look at the cycle, buy it right, and when it hits the top, you have to sell.”

Philip
van Doorn

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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Philip
van Doorn

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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